The U.S. payments landscape has undergone a major transformation, with the physical transportation of checks replaced by the capture, processing and clearing of check images from diverse points of deposit including branches, kiosks, ATMs, merchant locations, homes and mobile phones.

The unprecedented convenience for customers has raised the bar on expected user experience. It has also ushered in a set of risks, from outright fraud to unintended errors.

As the financial services industry emerges from the Great Recession, the battle between institutions will be for customer deposit acquisition and retention. The delivery of superior service will be critical in enhancing customer loyalty. Risk mitigation and customer service are often competing imperatives. In the battle for deposits, the successful financial institutions will be those that can ensure a consistent, positive customer experience while mitigating deposit risk.

With remote deposit capture it is important to remember that the members scanning deposits or taking pictures of checks on mobile phones are not check processing professionals. Expectation in our instant gratification era is for a “click-and-go” experience. Excellent image quality, particularly for mobile deposits often affected by angles and shadows, is an imperative. Rejection of too many checks for poor image quality can result in members abandoning the deposit alternative or even the credit union altogether.

Image processing has vastly accelerated the deposit processing cycle. While there are obvious positives from early posting and funds availability, fraud can also happen at “light speed.” The traditional approach to risk mitigation is to analyze deposits on Day Two through batched processes. In today's world, that is a couple of days and several dollars short. Modern risk management systems need to operate in real-time, across and at all points of deposit, on Day Zero.

It is important to assess risk from multiple perspectives such as member history, size of deposit, the particular deposit channel being used, potential for duplicate deposits, etc. Severity assessments can drive policy actions like deposit holds and reviews – both human and automated. On the other hand, they can also facilitate member-friendly actions like making funds available for members deemed low risk.

Systems need to allow credit unions to customize thresholds, criteria and actions based on their risk mitigation strategy. The risk safety net needs to work across multiple financial institutions to determine, for example, whether an account has been closed or if the same check has been deposited at another institution. Proficient systems can have more than a hundred tune-able, real-time risk filters working together to drive comprehensive risk management policy.

Effective analytics are necessary to aggregate and analyze transaction behavior across multiple institutions to continuously refine strategy alternatives based on best practices. In other words, systems need to be Day Zero, real-time, granular and self-learning.

To address user experience risk, particularly for mobile deposits, systems need to have access to an audit trail of all attempted image uploads by the member. This can help technical support organizations render quick and relevant assistance. User education through error messages can help improve the overall experience. For example, “Flatten check and place on a dark surface” is more effective than “Error- cannot read image”!

An agile risk mitigation strategy and platform allows credit unions to effect the best balance between containing risk and improving the user experience. The dictionary defines agile as quick and well coordinated in movement. Thus, modern systems need to be fast and yet comprehensive in assessing risk, and implementing policy actions.

The way forward is for agile risk management engines that work on Day Zero, across all deposit channels and multiple institutions.

Jim Ballagh is vice president of business development at Ensenta Corp. in Redwood Shores, Calif. CONTACT: jim@ensenta.com or (650) 868-5517.

Instant Insights /

Risk Management and RDC

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